Market Shocks and Newspaper Ideology: Evidence from Taiwan Chun-Fang Chiang Long-Yu Chiou David Jinkins Abstract This paper investigates the influence of market forces on newspaper ideologies and readers’ choices in Taiwan. We measure a newspaper’s political position by counting a newspaper’s relative frequency of use of the terms “China” and “Mainland”. This captures a newspaper’s position on Taiwanese Independence, a major issue in Taiwanese politics. We find that Liberty Times had significantly changed its newspaper political position in 2003, when a tabloid newspaper owned by a Hong-Kong media firm entered the newspaper market in Taiwan. Using survey data, we estimate consumer preferences for newspaper consumption and examine the newspapers’ best strategies on choosing political positions. We find that the ideological change made by Liberty Times was necessary to maintain its market share in the face of competition. Finally, we analyze changes in newspaper ideologies in 2008 when China Times was sold to Want Want Group. --------------------------------------------------- Chiang (corresponding author): Department of Economics, National Taiwan University, Taipei, Taiwan. TEL: 866-2-23519641; E-mail:[email protected]. Chiou: Department of Economics, National Taiwan University, Taipei, Taiwan. Jinkins: Department of Economics, Pennsylvania State University, PA, USA. Suppose Eve hadn't bitten into that forbidden fruit. There wouldn't be evil or wrongdoing in the world, and of course no news either. – The founder of Apple Daily 1. Introduction The naughties were frightening for a traditional Taiwanese newspaperman. In 2003, a tabloid newspaper from Hong Kong burst into the staid Taiwanese newspaper market. Apple Daily quickly devoured market share from established newspapers. Newspapers reacted to the competition by changing dramatically. Respectable newspapers began to publish more pictures, color spreads and less editorials, as well as increasing the size of headlines (Zhou 2004, Zhang 2005). A theoretical paper by Mullanaithan and Schleifer (2003) implies that to avoid price wars, media firms react to competition by increasing news slants. In this paper, we first test if three major Taiwanese newspapers altered their political slants in addition to cosmetic changes. Using a divisive Taiwanese political issue we construct an ideology index that measures the frequency of using “China” instead of “Mainland” or “Mainland China” in a newspaper. We find that indeed Liberty Times increased its frequency of use of the term “China” significantly after Apple's appearance, while United Daily and China Times did not change their choices of words significantly. We also find that readers of major newspapers became more politically segregated. Next we use the dynamic Taiwanese newspaper market to estimate consumer preferences for newspapers and ask how media sources choose slant. An individual-level survey with information on newspaper consumption and political preferences helps us to avoid potential problems of demand estimation when using aggregate market share data. The significant change in Liberty Times help us to identify consumer preferences for newspaper ideology. Combining our ideology index along with the survey data around 2003, we use nested logit model to estimate consumer preferences. This exercise is similar to the demand estimation in Gentzkow and Shapiro (2010) on newspaper ideology, except that our detailed household-level data allows us to use a much simpler specification. Using the estimated parameters in the utility function, we examine strategies made by newspapers when facing a new competitor. Simulations of the Taiwanese newspaper market show that the ideological change made by Liberty Times was necessary to maintain its market share in the face of competition but two other newspapers were leaving money on the newsstand. If one of these two newspapers shifted its editorial slant, it could increase readership. The literature on media bias has argued that media owners may choose an editorial position in line with personal political views, even if such a position reduces profits (Povich 1996, Lichter, et al. 1986, Weaver and Wilhoit 1996, Balan, DeGraba, and Wickelgren (2009)). We test whether ownership affects the ideology using the 2008 purchase of a major newspaper, China Times, by a group with a China-friendly political position. The regression results suggest that the change in the ideology measure of China Times was statistically significant but small after the ownership transition. This paper adds evidence to the recent empirical literature on economic incentives and political bias in the media (Gentzkow and Shapiro, 2010; Shapiro and Sinkinson 2012). Gentzkow and Shapiro (2010) find that readers prefer to read newspapers with ideologies closer to their own and the owner of a newspaper does not affect its ideological slant. Shapiro and Sinkinson (2012) focus on the strategies of media firms under competition and show that newspaper competition in the early 20th century caused newspapers in the U.S. to choose different party affiliations. General theoretical work on product differentiation is much older (Hotelling, 1929; d’Aspremont, Gabzwicz and Tisse 1979). Early duopoly studies of exactly one quality dimension and one variety dimension found that firms will maximize differentiation in one dimension and minimize in the other (Economides 1989; Neven and Thisse 1989). Later studies generalized this result to duopolies with any number of attribute dimensions, some considering only variety or quality differentiation (Ansari, Economides et al. 1998; Irmen and Thisse 1998; Garella and Lambertini 1999), and others considering both types (Dos Santos Ferreira and Thisse 1996). These studies suggest that firms will choose to differentiate maximally in one attribute in order to avoid harsh price competition, but will choose minimum differentiation in all other attributes to get the largest possible share of the market. 1 Vogel (2008) creates a model in which firms differ in productivity and concludes that more productive firms will be more isolated. The paper is organized as follows. Section 2 introduces background of the newspaper market in Taiwan, our newspaper ideology index, and the data for estimation. Section 3 presents the econometric model of demand estimation. Section 4 presents the estimation results. Section 5 examines newspaper strategies under competition based on simulations. Section 6 concludes. 2. Background and Data Before the entry of Apple Daily in 2003, there were three major newspapers in Taiwan, United Daily, China Times, and Liberty Times. These three newspapers comprised 80 percent of the newspaper market share. As shown in Figure 1, Apple Daily successfully entered the newspaper market in Taiwan in 2003 and became the second largest newspaper by 2005.2 Apple Daily is owned by a subdivision of Next Media, which is based in Hong Kong and is known for introducing tabloid-style journalism into Hong Kong. On the one hand, Apple Daily in Taiwan has been criticized for its sensational news style and has caused concern regarding possible violations of private rights tabloid news features. On the other hand, Apple Daily differs from the existing newspapers in its ability of attracting readers’ eyes. It has larger headlines, more pictures/tables, and more soft news with practical information. Overall, Apple Daily was able to leverage foreign knowledge and technology into Taiwan and appear as a strong competitor to existing newspapers. Given its success in the newspaper market, it is natural to ask, then, why didn’t Apple Daily or a similar newspaper enter the Taiwan market earlier? The answer lies in 1 The degree of product differentiation may depend on market size. If market size is very large, the unique location equilibrium of firms is that both firms agglomerate at the center (Anderson, Simon and Neven, 1991). However, as the market size is relatively small, there exist two equilibria: one is the agglomeration but which is unstable, and the other is dispersed equilibrium. Furthermore the distance of the firms’ location would increase as market becomes smaller (Chamorro-Rivas, 2000. Liang et at., 2005). 2 Newspaper readership is calculated from the data of AGB Nielson. The readership of a particular newspaper is defined as the number of readers who read the particular newspaper yesterday divided by the number of people who read one or more newspapers yesterday. government regulation. Although Taiwan’s newspaper prohibition ended in 1988, it was not until the late 1990’s that the Taiwanese government began to relax its publishing laws relating to foreign companies. The change in policy was largely due to Taiwan’s application to join the World Trade Organization, which was accepted in 19993 with Taiwan officially becoming a member on January 1, 2002. As part of Taiwan’s WTO agreement, Taiwan cannot restrict the news agency services, except to require the residence of an editor and publisher in Taiwan (WTO 2001). It should be noted that the first 500,000 trial issues of Apple Daily were actually distributed on March 20, 2002, just three months after Taiwan entered the WTO (Zhou 2005). 2.1 Political Positions of Newspapers There have been two dominant political forces in Taiwan after the martial law regime. One is the pro-unification Pan-Blue coalition, comprised of the Kuomintang, the People First Party (PFP), and the New Party. The other is the pro-independence Pan-Green coalition, comprised of